A client uses a suspense account for unresolved questions whose final accounting has not been deterÂmined. If a balance remains in the suspense account at year-end, the auditor would be most concerned about:
A. suspense debits that management believes will benefit future operations.
B. suspense debits that the auditor verifies will have realizable value to the client.
C. suspense credits that management believes should be classified as “Current liability.”
D. suspense credits that the auditor determines to be customer deposits.
Answer is A. I have never heard of a “Suspense Account” before. It has a debit balance? Is it an asset? Contra-revenue?
From Ninja:
Material misstatements due to fraudulent financial reporting often result from an overstatement or understatement of revenues. Therefore, the auditor should ordinarily presume that there is a risk of material misstatement due to fraud relating to revenue recognition.
Material misstatements due to fraudulent reporting often result from an overstatement of revenues, either through premature revenue recognition or recording fictitious revenue, or from an understatement of revenues by improperly shifting revenues to a later period.
Of the answer choices listed, an auditor would be most concerned that the suspense debits will be used in future operations creating an overstatement of revenues for that year.
FAR- 80
BEC- 75
AUD- 78
REG- ?
.